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Maurice "Hank" Greenberg

Somewhere in a parallel universe, there’s an American International Group (AIG) that spent September 2008 craftily negotiating with its creditors over credit default swaps, ultimately paying pennies on the dollar. That AIG did not become a financial pariah, was pushed by no disgruntled counterparty into bankruptcy nor bailed out by the U.S. government. Its shareholders were the luckiest on Earth, making out like crazy while the rest of the financial world crumbled.

That’s the premise of the ungrateful souls suing the U.S. government over the $182 billion federal bailout widely considered to have rescued the insurance giant from the brink of extinction.

The Treasury and the Fed extracted their pound of flesh of course, but at the time were justly criticized for being too generous to shareholders facing the deserved loss of their whole hide.

But that was then and this is now and now no good deed goes unpunished. So former AIG boss Maurice “Hank” Greenberg, who remains a major shareholder, is leading a group suing the government for $25 billion, contending that it overcharged for an unnecessary rescue.

Hank Greenberg’s case is being argued by hotshot celebrity lawyer David Boies, who neither broke up Microsoft nor got Al Gore elected president. Still, Boies has won a few and knows a thing or two, though maybe not about public relations.

He’s arguing that the rescue of AIG was really “a backdoor bailout of Wall Street.” Wall Street had loaded up on AIG’s promises to pay if things went sour, bought them by the bushel before and after AIG became the last schmo in town to realize sour was the flavor of the coming decade. And it got paid in full under the terms of the deal a broke AIG struck with the Fed in 2008.

So here come Greenberg and Boies pleading the Fifth – and not the self-incrimination part of the constitutional amendment but the bit that prohibits the seizure of private property without compensation. And they want AIG to join in the fun. In fact, tomorrow, DealBook reports, Greenberg will be back at AIG headquarters at long last as his representatives make the case for a united legal front.

There’s a legal argument that joining the suit against the government might shield AIG itself from legal liabilities. Whereas the government can’t sue AIG simply for suing it.

But it’s never a good idea to piss off your regulators. And that’s not even the main reason why AIG should fumigate the building after Greenberg departs.

The main reason is that AIG got to death’s door by denying the financial reality all around it. And Greenberg is a reality denier like few others. Matt Taibbi of the Rolling Stone has called his lieutenant Joe Cassano, who ran the AIG-FP subsidiary that sold the ill-fated default swaps, “Patient Zero” of the global financial epidemic. If so, Hank Greenberg was the infection.

According to Bethany McLean and Joseph Nocera in All the Devils Are Here, Greenberg ran the company "with an iron fist” but without adequate risk or accounting controls or enough qualified subordinates to oversee the spider’s web of subsidiaries he created in pursuit of regulatory advantages.

Greenberg was ousted by then New York Attorney General Eliot Spitzer in 2005 over—surprise!—an accounting scandal, in which he was accused of overseeing transactions designed to misrepresent the company’s financial position. But by that time he’d already installed Cassano, another bully and monomaniac, as head of AIG’s trading subsidiary. And he forgot to tell new management that Cassano had carte blanche to gamble with the company’s balance sheet.

Cassano was such a bully, according to Michael Lewis, that when subordinates belatedly learned that the mortgage derivatives on which they’d written protection were vastly toxic they only had the courage to urge him not to write any more, but not to start cutting their already massive exposure.

And after Cassano walked away from the global financial wreckage with hundreds of millions in his bank account, he had the gall to tell the inevitable crisis postmortem panel that AIG’s losses were caused by its auditors and regulators, suggesting all that subprime exposure would have worked out just fine if AIG had been left alone. It was basically a preview of Greenberg’s claims against the government.

If AIG buys into those arguments, it will be announcing to its employees and the world that it has learned nothing from the crisis, that short-term legal and financial expediencies still dictate how it views any situation. It will be explicitly endorsing the corporate culture of denial that Greenberg fostered and Cassano exemplified. It will, in short, be cutting its own throat a second time.